On the Asymptotic Behavior of the Optimal Exercise Price Near Expiry of an American Put Option under Stochastic Volatility

The behavior of the optimal exercise price American puts near expiry has been well studied under Black–Scholes model as a result series publications. However, stochastic volatility model, such Heston not reported at all. Adopting method matched asymptotic expansions, this paper addresses put options on dividend-paying underlying with expiry. Through our analyses, we are able to show that option will be quite different from evaluated while leading-order term remains almost same constant case if spot is given value in model. Results numerical experiments also suggest analytical formulae derived analysis reasonable approximations for remaining times order days or weeks.